Ever sat on the desk with a head trader insistent he was right about the direction of a stock/market? I have seen firms get crushed because their head trader was fading a weak market and insisting the market should trade higher. I have been guilty of over-confidently insisting on the direction of a stock/market. GMan has been as well. Certainly Steve 🙂 Is there a better way to communicate on a trading desk then the head trader playing God?

As a mentor/head trader it is often important to give strong guidance as to what you see in the markets. This can improve the performance of the lesser traders. A private conversation I had recently with a well-connected trader gleaned his firm was killing it of late because their head trader was “seeing the markets well” and repeatedly vocalizing its next direction. Not only was the head trader making money but this was trickling down to the lesser traders. But we learn in the book Sway: The Irresistible Pull of Irrational Behavior that the head trader/head pilot can at times make poor decisions. What do we do when that head trader is just off or failing to consider important trading information?

A fatal error by a star safety pilot, which could have been prevented by just the co-pilot speaking up, caused the air line industry to develop a new communication system amongst pilots. A system of the lead pilot is all-knowing was replaced with a system where co-pilots can constructively offer advice to improve final decisions. As traders we should consider these transformational ideas to improve our communication on our desks, in our chat rooms and through our virtual trading floors.

So for instance at Southwest how do the pilots communicate? Below is a passage from Sway:

Pilots are trained to communicate effectively and accept feedback, and crew members are taught to speak up when they see that their superior officer is about to make a mistake………

Captain Brockington likes to take it even a step further. “I like to vocalize my thoughts. I think out loud. That way the person sitting next to me always knows what I’m thinking. And if the copilot can detect a flaw in my thought pattern, he or she is more apt to speak up. They don’t say you have to do that, but I think it’s a good idea.” Brockington’s method of thinking out loud makes it easier for the first officer to weigh in with a different point of view or challenge the captain when necessary.

At Southwest, they really push this culture of teamwork. “We only hire people who are very friendly and outgoing people,” Brockington said. The crew and officers stay at the same hotel and socialize together, as well. “We invite the crew to come down. If you feel the captain is approachable, you’re certainly more apt to speak up if you have a concern.” Brockington tells his crew, “We all make mistakes, so I really want you to speak up if you have a problem. If you see something that you don’t like, it won’t hurt my feelings.”

When Brockington goes in for his annual CRM course, one of the instructors he might get is Captain Cathy Dees. She teaches CRM to new hires and a refresher course for current Southwest pilots. When pilots spot a departure from safety procedures, they are trained to challenge the captain. The challenge takes the form of three steps that all Southwest pilots know by heart. “The first step,” Dees said, “is to state the facts” — for example, “Our approach speed is off.” If that’s ineffective, the next step is to “challenge.” According to Dees, research has shown that “generally the best way to challenge someone is to use their first name and add a quantifier to the fact. ‘Mike, are you going to make it on this approach? Check your altitude.'” That will get the captain’s attention and bring him or her out of the tunnel vision he or she may be experiencing. “It’s important to state the fact without being condescending,” she said.

If these two procedures fail, the third step is to “Take action. If someone were flying an unstable approach — that means they were approaching the runway and they were perhaps a little too high or too fast, or not in a condition to make a normal landing — we would want them to go around,” Dees explained. The action Dees advises would be to get on the radio and say, for example, “Southwest 1 going around, we’re too high.’ And once you say something on the radio, the tower controller will cancel your landing clearance. And that way the action takes place without physically fighting over equipment n the airplane, which might aggravate the person flying.”

A head trader offering insight can be a powerful P&L contributor.  But a system where he/she is all-knowing is not always in the best interests of a firm/traders.  A communication system where a leader can be offered data to improve his decisions is often superior.

Bella

One Good Trade